Cheaper labour costs will create jobs and bring production back to the US, says Ford

FORD Motor Company announced on Tuesday it had reached a tentative four-year agreement with the major US auto union that limits hourly pay rises in return for the creation of 12,000 new jobs by 2015.

The Ford agreement – which remains subject to ratification by 41,000 UAW members – also includes $16 billion in local investments to design, engineer and produce more new and upgraded vehicles and components by 2015.

Perhaps the biggest problem facing the three traditional US car-makers has been the high cost of labour as a result of previous union agreements that see long-serving production line employees earning as much as $28 an hour whereas “transplant” manufacturers such as Toyota and Honda pay considerably less.

The new agreement will see Ford’s 12,000 new employees earn little more than half that hourly figure – initially about $17 an hour – making the Blue Oval more cost-competitive.

Having been hauled away from the edge of financial ruin in recent years, Ford has recovered remarkably well in recent years and was involved in lengthy negotiations with the United Auto Workers union – as have General Motors and Chrysler.

Early this year Ford announced a $6.6 billion profit – one of its best ever – and rewarded hourly workers with a $5000 bonus, but that did not prevent criticism of Ford CEO Alan Mulally’s new pay package of $26.5 million last year.

That gave UAW president Bob King extra ammunition in calling for lost wages and employee benefits sacrificed in the dark times, but this week Mr King said the effect of the new agreement would be an overall rise of just one per cent annually in Ford’s hourly labour costs.

Mr King said the overall cost of the pact was very similar to the deal ratified on September 16 by GM workers.

Ford had previously announced it would add 6250 hourly jobs in the next two years, and the latest contract will create another 5750 over the next four years.

According to The Wall Street Journal, a new buyout program will also enable Ford to shed its most expensive workers and add more lower-cost workers to its US assembly lines.

The newspaper said that, unlike GM, Ford has virtually no workers on entry-level wages and would pay skilled workers up to $100,000 to leave the company, compared with $75,000 at GM.

Ford said in a brief media release that its new jobs commitment included bringing back work that had been outsourced to Mexico, China and Japan.

The UAW revealed that this included using a currently underutilised factory in Flat Rock, Michigan, to produce the next-generation Fusion mid-size car, which has been built exclusively at a low-cost plant in Mexico, alongside the next-generation Mustang.

The union also said Transit van production would be switched from Europe to Kansas City (Missouri), the Focus-based C-Max hybrid and plug-in hybrid models would be built in Wayne (Michigan), instead of Europe, and that a new unnamed vehicle would be produced in Louisville (Kentucky) alongside the Escape SUV.

Production of a transmission currently sourced from Japan and oil pumps manufactured in China are also believed to coming back to the US as a result of the more competitive agreement.

“We are pleased that, by working together with the UAW, we reached a deal that is fair to our employees and that improves Ford’s competitiveness in the US,” said John Fleming, Ford’s executive vice-president of global manufacturing and labour affairs.

“This agreement allows us to make even more progress on our One Ford plan and our focus on the great products, stronger business and better world that will deliver continued profitable growth for all.”

The UAW revealed that Ford’s promised $16 billion investment includes $6.3 billion to be invested directly into retooling and upgrading plants.

The union said it was pleased to have concluded the Ford agreement and brought jobs back to the US.

“As the nation’s economy remains stalled and uncertain, and its employment rate stagnates, we were able to win an agreement with Ford that will bring auto manufacturing jobs back to the United States from China, Mexico and Japan,” said UAW president Bob King.

“This agreement adds 5750 new UAW jobs, which means more than 12,000 new jobs in total with jobs previously announced by Ford. Many of these jobs will be added by the end of 2012, and all will be added during the term of the new contract.

“Last week, the UAW and General Motors Co. announced the creation of 6400 jobs at GM (so) the American auto industry is on its way back.”

UAW vice-president Jimmy Settles, who directs the union’s Ford department, said the new agreement was a good deal for workers.

“UAW members sacrificed when the company was struggling, and this agreement ensures that our members will now share in Ford’s prosperity,” he said.

“While new jobs, investment and new products for our plants are the most important components of a secure future for our members, we were also able to make important gains in both income and benefits in this tentative agreement.

“In terms of economic security, we won a $6000 ‘settlement bonus’ for workers and $7000 in ‘inflation protection’ and competitive lump-sum payments over the term of the agreement.

“Another important gain is the strong improvements we made in transparency and simplicity in the profit-sharing plan. Workers will receive their first payment averaging $3700 this year. We were also able to increase entry-level wages to $19.28 over the term of the agreement.

“This agreement recognises that Ford would not have turned the corner had it not been for the commitment and dedication of its workers.”

Talks between the UAW and Chrysler continue, with the current contract having been extended to October 19.